Category Archives: bonds

July 21, 2011

Rand steady at noon

By *media update*

The rand remained steady, trading in a narrow range, in midday trade on Wednesday as global markets marked time ahead of crucial debt meetings in the Eurozone.

The local currency paid little heed to consumer inflation data for June which was in line with expectations and supported economists’ views that a rate increase remains unlikely this year.

At 12pm local time, the rand was bid at 6.9026 to the dollar from its previous close of 6.9118. It was bid at 9.8090 to the euro from 9.7843 before, and at 11.1085 against sterling from 11.1317 previously.

The euro was at US$1.4207 from US$1.4169.

A local dealer said he expected “more of the same” ahead of crucial meetings in the Eurozone to tackle debt concerns.

“I would expect the rand to trade in a sideways movement,” he said, pointing to a range of 6.86-6.98 against the dollar.

“The euro is a little stronger, but the market is headline-driven at the moment, resulting in sudden little moves. But we’re not expecting much change ahead of the Eurozone meetings,” the trader added.

Standard Bank analysts said in a morning report that rand bears had backed off as risk aversion eased.

Michael Keenan, head of forex research, said that risk appetite improved on Tuesday on better-than-expected US housing data, encouraging US corporate earnings, President Obama’s plan to reduce the US’s debt as well as optimism that EU leaders would reach an agreement about how to deal with the Eurozone’s debt. This saw the rand enjoy some short-covering.

“However, rand strength was curtailed by the unresolved domestic fuel strike.

“We believe that global risk appetite is driving the rand. However, we argue that SA retail sales data will have a greater bearing on the rand than CPI data because inflation is still comfortably within the SARB’s 3-6 percent range and SA monetary policy is only likely to start normalising when local demand recovers on a sustained basis,” Keenan said.

Standard Bank however added that if either data release surprised to the upside, it would be regarded as rand-positive because such an outcome would help maintain the rand’s real yield differentials even if inflation keeps climbing.

RMB analysts said in their morning brief that the relief rally had proved stronger than expected but was losing speed coming into this morning.

“The most USD/ZAR can do ahead of tomorrow’s Eurozone summit is probably 6.90. Multi-day risks remain to the upside,” the group said.

Meanwhile Dow Jones Newswires reported that hopes for an agreement on financial aid for Greece supported the euro, but the single currency remained in a narrow range ahead of the EU’s emergency summit Thursday.

Bonds firmer after CPI data 

Bonds were up to five basis points firmer in midday play on Wednesday, as CPI data came out in line with market consensus.

The increase in South Africa’s consumer price index (CPI), which is used by the SA Reserve Bank (SARB) for its inflation target, was 5.0 percent year on year (y/y) in June, from 4.6 percent y/y in May, Statistics SA (Stats SA) said on Wednesday.

This was in line with to a survey of leading economists by I-Net Bridge. Forecasts among the eight economists ranged from 4.77 percent to 5.1 percent. CPI was 0.4 percent month on month (m/m) from 0.5 percent in May.

Chris Hart, an economist at Investment Solutions said: “Clearly the CPI is still on the upward trend and this is expected to continue until the year-end. The rand continues to strain the CPI in the face of very excessive cost expenses. Basically, there is no pressure on the Reserve Bank yet, but when CPI reaches 6 percent then the Reserve Bank will increase scrutiny.”

By 11.50pm, the benchmark R157 bond was at 7.470 percent, from its previous close of 7.495 percent. The R207 was bid at 8.320 percent and offered at 8.295 percent from 8.370 percent, and the R186 was trading at 8.575 percent from 8.615 percent.

Article courtesy of iafrica.com – please click here for the original article

Leave a comment | posted in bonds, currency, eurozone, inflation, monetary policy

July 19, 2011

Rand weakens as major currencies gain ground

By *media update*

Johannesburg. The South African rand weakened against major currencies, as investors shield away from risky assets.
“The last two days have seen the rand trading weaker on worries about poor performing European banks and fears about US credit ratings.

The rand will be unlikely to weak any further from here. We expect the rand to remain in the range we set which is between 6.60 and 6.97,” said Chris Hart, Chief Strategist of Investment Solutions.
The strike by steel, engineering and energy workers has also being weighing on the rand. “I think there’s still a lot of investment merit for investment inflows to come in South Africa as conditions deteriorates in developed economies,” said Hart.
The rand fell almost 1 percent this week. The South African currency was trading at 6.90 to the US dollars from 6.85 from previous day’s close. Pound Sterling was at 11.11 after touching 11.04 on the previous day’s session. The euro was costing 9.75 rand from 9.71 rand. The dollar was softer against the Japanese Yen at 79.10 from 79.12.

On the capital market, bonds are flat, with the yield on the R157 government bond at 7.45 per cent from 7.48 per cent Thursday. (Xinhua)

Article courtesy of The Citizen – please click here to see the original article

Leave a comment | posted in bonds, currency, international, investment, labour

June 29, 2011

Turning risk on its head

By *media update*

At a recent presentation, Chris Hart, chief strategist at Investment Solutions challenged the current notion of risk and what we consider “risky” assets. 

In a global environment where many countries, the United States included, are so indebted as to raise the question of defaulting on their sovereign debt, one could argue that shares (or debt) held in individual companies are actually a safer bet than government bonds.

At the same time most developed economies are running negative interest rates , so cash is effectively delivering a negative return after inflation: cash loses you money.

Add into this mix the fact that we are all living longer and the inflation rate for retirees is substantially higher than the official inflation rate due to higher medical costs, and the idea of bonds and cash as ‘risk-free’ savings is turned on its head.

While in the short-term cash may offer some capital protection, the volatility of interest rates combined with its inability to keep pace with inflation makes it a significant risky asset for retirement savings. As a result savers are forced to put their money at risk in order to seek growth that will outpace inflation.

“Equities may not guarantee you a return above inflation, but at least they give you a fighting chance,” says Hart.

Plundering the savers
In this economic climate where further debt seems to be the only solution put forward by governments to dig themselves out of debt, Hart says savers have become a pot of money to be plundered by low interest rates and higher tax rates.

At current interest rates a logical response would be to spend your money rather than save it. This is of course exactly what the governments of developed economies are hoping their citizens will do because economic growth is driven by debt, not savings.

Hart argues that the way GDP is calculated is what drives this debt cycle. There is no differential between growth through wealth creation or wealth through spending. If an economy is growing by 5%, no one is asking about the quality of that growth and whether it is eroding the savings base (balance sheet) of the country.

Hart argues that investors should be looking at the balance sheet of the economy rather than simply the growth rate; it is easy to stimulate an economy with cheap money and debt, but it is not sustainable. Hart says a country like Zambia is lower risk than the United Kingdom as Zambia’s growth is driven by wealth creation, not spending.

End of the welfare state
Developed countries have been overspending for too long, driven by an election process which, Hart argues, is about offering voters ‘a packet of goodies’ where voters elect those governments that offer them the best selection of freebies. Greece has now reached a point where it can no longer deliver those goodies and America is not far behind.

Hart believes that the US is on the road to sovereign default. If congress does not lift the ceiling on the US’s credit line allowing it to borrow more, the country may very well default on this sovereign debt (US treasuries). However by borrowing more, the US runs the risk of becoming indebted to a level from which it will not be able to recover.

The only solution is for governments to cut back dramatically on social spending and therefore Hart predicts that the next big economic event will be the end of the welfare state.

Article via Mail&Guardian – click here to view original article

Leave a comment | posted in bonds, currency, inflation, markets

January 20, 2011

Business Briefs

By *media update*

Biti’s bloodbath talk just more of the same

Talk by Zimbabwean Finance Minister Tendai Biti of an election “bloodbath” does not pose an immediate risk to investor confidence in that country, some analysts say.

“I’m not sure there’ll be much of a reaction,” said Investment Solutions economist Chris Hart. “There’s a clear, probably justifiable, concern, given the problems of the last, stolen election, but one has to see how this unfolds.”

Speaking in Johannesburg on Wednesday, Biti reportedly warned of “disastrous, debilitating consequences” if there were a repeat of the bloody elections of 2008. – I-Net Bridge

Eskom prices new unsecured bond

ESKOM announced yesterday that it had priced its 10-year $1.75-billion senior unsecured and unguaranteed bond at 5.75% for the international capital markets. Eskom listed the bond in the US yesterday. The offer was vastly oversubscribed and will be one of the largest international bond issues yet by a South African entity other than the state. – I-Net Bridge

Ellies shares remain largely unchanged

ELLIES Holdings yesterday announced diluted headline earnings per share of 15.12c for the six months ending in October, from 14.47c previously.

Ellies is a manufacturer and distributor of electronic products related to television reception, including aerials.

Article courtesy of Times LIVE – please click here to see the original article.

Leave a comment | posted in bonds, politics

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